Many thanks to Sue Reisinger and Corporate Counsel for the opportunity to engage in a Q&A regarding various aspects of the FCPA. (See here  for “Happy Birthday, FCPA! We Party With An Expert”).
Many thanks also well to Robert Wilhem and Bloomberg Law White Collar Crime Report for the opportunity to engage in an extensive Q&A regarding various aspects of the FCPA. Among the topics discussed in the below Q&A (originally published on November 24, 2017 in the White Collar Crime Report and republished with permission) are the following: whether the FCPA has been successful; whether the FCPA puts U.S. companies at a disadvantage; typical time periods associated with FCPA inquiries; FCPA enforcement thus far in the Trump administration; and FCPA reform.
Q: The FCPA turns 40 on Dec. 19. How effective has the law been in curbing foreign bribery, and does it put U.S. companies at a disadvantage?
Whether the FCPA has been successful in accomplishing its objectives is very much an open issue and I am writing an entire article about this question. The answer largely depends on the meaning of success. In passing the FCPA, congressional leaders stated that the FCPA ‘‘would end corporate bribery’’ and that the ‘‘goal of the FCPA is the elimination of foreign bribery.’’
Granted, politicians are known to make aspirational statements, but if this was the goal, obviously 40 years later it has not happened. If a law is being successful in accomplishing its objectives, we might expect enforcement of the law to wane over time, not substantially increase which has occurred in the FCPA context.
But then again, quantity of enforcement is just one measure of success. Another measure of success is ‘‘soft’’ enforcement and the notion that the threat of enforcement results in those subject to the law conforming their conduct to enforcement norms—in other words deterrence. Here, I think the FCPA has been successful, but measuring this form of success is difficult if not impossible. Yet even with ‘‘soft’’ enforcement, too much deterrence, and too much risk aversion is not exactly a good thing either. Is the world necessarily a better place given that, in the aftermath of FCPA scrutiny, several companies such as Ralph Lauren, Bio-Rad, Key Energy, Layne Christensen have exited the countries at issue? Is the world a better place when, because of recent FCPA enforcement actions concerning charitable donations, companies don’t make charitable contributions that could benefit many people? Related to the ‘‘soft’’ enforcement form of success, what about the fact that there have been numerous FCPA repeat offenders including three just this year (Halliburton, Zimmer Biomet and Orthofix).
Finally, another measure of success is what I call ‘‘modeling’’—in other words, did the FCPA motivate other countries to pass FCPA-like laws. After all, in President Carter’s signing statement he noted that U.S. efforts ‘‘can only be fully successful in combating bribery and extortion if other countries and business itself take comparable action.’’ Presently, there are approximately 40 other nations with FCPA-like laws, but I think there is assumed causation here. In other words, I think it is a bit presumptuous to say that the only reason Canada has the Corruption of Foreign Public Officials Act or the United Kingdom has the Bribery Act is because the U.S. passed the FCPA in 1977.
Does the FCPA put U.S. companies at a disadvantage? One of my favorite quotes from the FCPA’s legislative history is the following: ‘‘To the extent a particular company may lose a particular contract because it refuses to engage in this practice, I would be willing to say, all right, we will be at a slight competitive disadvantage and we will all sleep the better for it.’’ Whatever validity the competitive disadvantage position may have had when the FCPA was passed, it has diminished with each passing year as other nations increase enforcement of their FCPA-like laws.
Where the issue continues to have validity is not so much the FCPA as a law, but how the FCPA is enforced and the notion that numerous enforcement actions have been based on travel and entertainment issues, charitable donations, internship and hiring practices and other alleged conduct where it is an open question whether the conduct even violates the FCPA.
Another way to frame the competitive disadvantage issue is to look at the impact FCPA scrutiny and enforcement has on companies. When companies spend three, five, 10 times the amount of settlement on preenforcement action professionals fees and expenses (as is the norm), of course this is a competitive disadvantage. However, the blame for this is not so much the FCPA, but FCPA Inc. and the fact that FCPA Inc. is a multi-billion industry and that FCPA scrutiny often turns into a boondoggle for many.
Q: How would you compare the enforcement actions of 2017 with the past five years?
2016 was a record breaking year for FCPA enforcement and I could have told you on Jan. 1, 2017, that enforcement in 2017 was highly likely to be less than in 2016. However, when you compare 2017 FCPA enforcement thus far (and let’s not forget that December tends to be a very active for FCPA enforcement), 2017 is an above average year both in terms of the number of core corporate enforcement actions as well as individual DOJ actions.
Q: How long does the garden variety FCPA case take, from beginning investigation to the end—how long are they in the pipeline?
Way too long. According to my statistics, 4.25 years was the median length of time companies that resolved FCPA enforcement actions in 2016 were under scrutiny with some instances of scrutiny lasting five plus years. Given that the majority of corporate enforcement actions tend to originate from voluntary disclosures and/or instances in which the company is cooperating, and given that the DOJ and SEC have specific FCPA units, this is simply inexcusable and significantly undermines the credibility and legitimacy of the DOJ and SEC’s enforcement programs.
Earlier this year, then Acting Principal Deputy Assistant Attorney General Trevor McFadden stated that FCPA Investigations should be ‘‘measured in months, not years.’’ Nice words , but I will believe it when I see evidence of it. For instance, in 2005 the then DOJ Assistant Attorney General for the Criminal Division talked about ‘‘real-time enforcement’’ and stated that ‘‘the days of five-year investigations, of agreement after agreement tolling the statute of limitations-while illgotten gains are frittered away and investor confidence sinks-are increasingly a thing of the past.’’
Q: If cases take so long, is it fair to criticize a new administration for being so-called ‘‘lax’’ on enforcement?
There are some who, beginning on November 9, 2016, and continuing to the present, have hyperventilated concerning the issue of FCPA enforcement in the Trump administration. Again, 2016 was a recordbreaking year and this year, not surprisingly, has been slower yet as highlighted previously above average in terms of the historical norms. The following are facts. In the first nine months of the Trump administration there have been more DOJ corporate FCPA enforcement actions than certain prior years in the Obama administration. In the first nine months of the Trump administration there have been five corporate FCPA enforcement actions with over $535 million in aggregate FCPA settlement amounts. This aggregate settlement amount exceeds aggregate FCPA settlement amounts secured during three years of the Obama administration: 2015, 2012, and 2011. Moreover, during one week in November, there were nearly as many DOJ individual criminal actions announced compared to all of 2016 and 2015. In short, let’s focus on facts, not narratives.
Yet, some have now moved on to the following issue: FCPA enforcement in the Trump administration have been actions begun during the prior administration. Given the length of time companies are under FCPA scrutiny this is obviously true. However, it was also true for the first three-five years of the Obama administration, but I don’t recall anyone ‘‘discounting’’ FCPA enforcement in the first Obama administration because of this FCPA enforcement dynamic.
Q: Are there any industries that you see as the biggest target for enforcement actions in the coming months, year?
Given how the FCPA is enforced, all companies doing business in the global marketplace have a certain amount of FCPA risk. Nevertheless, FCPA risk is largely a function of how many ‘‘points of contact’’ a company has with alleged ‘‘foreign officials.’’ Given the nature of its products and services, the oil and gas and related services sector, telecom, and the health-care sector broadly speaking (pharma, medical device, etc.) often have numerous ‘‘points of contact’’ and thus have been sectors which have seen a fair amount of FCPA enforcement.
Q: In the past 12 months, what do you think was the most important FCPA enforcement action in terms of sending a message to corporate officers that the Justice Department means business?
Oddly, the more obviously illegal the conduct is and thus the larger the enforcement action is (Odebrecht/ Braskem, Telia to name a few over the past 12 months), the less important the enforcement action tends to be from a take-away, compliance standpoint.
I recently highlighted on my FCPA Professor website the DOJ’s recent enforcement action against Antony Mace (the former CEO of SMB Offshore) and encouraged all executive officers to read it. The key allegations that should cause all to take notice were as follows: (i) the underlying conduct began before Mace become CEO; (ii) Mace had oversight authority over the entire company; (iii) Mace was aware of the FCPA and that the company was operating in high-risk countries; and (iv) Mace deliberately avoided learning that certain payments he authorized were in fact bribes and in the words of the DOJ ‘‘Mace’s deliberate avoidance was solely and entirely due to his own actions and decisions.
Q: If you could have carte blanche to change the FCPA, what would be the first thing you would do? And why?
An entire chapter of my book ‘‘The FCPA in a New Era’’ is devoted to this topic. Briefly, my long-standing FCPA reform proposal (at least the major features), is two-fold: first, amend the FCPA to include a compliance defense; and second, abolish NPAs, DPAs (and even more recently so-called ‘‘declinations with disgorgement’’) in the FCPA context.
This two-fold proposal will result in the following enforcement landscape. If a payment is made in violation of the FCPA’s anti-bribery provisions within a business organization, two issues will be relevant. First, if the payment was made, authorized or condoned by a director or executive officer, the business organization will not be able to avail itself of an FCPA compliance defense. Second, if the payment was made by any employee or agent in the absence of pre-existing FCPA compliance policies consistent with the best practices, the business organization will not be able to avail itself of an FCPA compliance defense.
In these scenarios involving corrupt directors or executive officers or business organizations without a commitment to FCPA compliance, the enforcement agencies will have two choices: do not prosecute or prosecute the business organization for violating the FCPA. This is a just and reasonable result and alternative resolution vehicles not needed in such a scenario. As even the DOJ has acknowledged and empirical research has demonstrated, it is extremely unlikely that actual criminal prosecution of such a business organization will result in its demise (the so-called Arthur Anderson effect).
Conversely, if the payment at issue is made by a nonexecutive employee or agent contrary to the business organization’s pre-existing FCPA compliance policies, the organization will be able to avail itself of an FCPA compliance. Thus, as a matter of law, no FCPA prosecution of the organization will be able to proceed. This too is a just and reasonable result and aligns FCPA enforcement with enforcement regimes in several other peer countries.
This two-fold FCPA reform proposal will take courage, both by Congress in amending the FCPA and by the enforcement agencies in abolishing the resolution vehicles they created. The reform proposals may indeed result in less FCPA enforcement actions as certain business organizations will be able to avail itself of the compliance defense and as enforcement agencies are once again mindful of their burdens of proof in prosecuting alleged FCPA violations. However, more FCPA enforcement is not necessarily an inherent good and ought not be the singular goal. The goal ought to be constructing an enforcement regime that best promotes compliance, reduces improper conduct, best advances the FCPA’s objective of reducing bribery, increases transparency and better aligns FCPA enforcement with rule of law principles.
The above FCPA reforms will accomplish these goals as well as increase public confidence in FCPA enforcement. The proposals will also rein in many of the FCPA’s long tentacles and allow the enforcement agencies to better allocate limited prosecutorial resources to cases involving corrupt business organizations and the individuals who actually engage in the improper conduct.
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